Collaboration, cooperation, competition. Banks and payment service providers tend to engage in one of three ways. This relationship is contingent on the operational models of both parties. Players within the payments space include payment processors, payment gateways, and acquirers. Each tends to operate within its own niche, but these operations can and do intersect. The conditions of partnership between bank and payment service provider depend on the latter’s capabilities, such as whether or not the payment institution holds a card acquiring license to enable the processing of client transactions directly, as well as the added value it can offer merchants seeking bank accounts.
Payment institutions handle transactions on a merchant client’s behalf. Partnering with acquiring banks, the payment service provider offers a unified payment gateway through which all incoming and, if applicable, outgoing transactions are processed. The benefits for both the merchant and bank are straightforward. Clients receive a range of services within the unified gateway, saving on the costs associated with integrating directly into an acquiring bank. Banks, meanwhile, enjoy a simplified compliance procedure for onboarding new merchants. Their payment service provider partner introduces qualified merchants, having already verified client details through a comprehensive Know Your Customer (KYC) procedure.
The payment partner’s value proposition to merchants, in this instance, is simplicity and convenience, facilitated by a unified payment gateway aggregating a selection of products, services, and technologies. To ensure a seamless customer experience and therefore higher conversion rates, the payment service provider introduces an array of sophisticated solutions: a fully customisable payment page targeting common customer misgivings, a selection of relevant regional alternative payment systems, proprietary risk management tools, and more. Under this partnership model, the payment service provider offers its merchant clients a banking product – acquiring – with the added value of technological innovation.
If a payment service provider has enough turnover, they may consider receiving an acquiring license, thereby enabling them to keep processing in-house, opening merchant accounts on behalf of their clients and issuing settlements. In this scenario, the payment companies may choose to continue working with their partner banks for multiple reasons, but the relationship will most certainly undergo a transformation as both parties adjust to new parameters. As an example, banks can be valuable partners in challenging regions, such as the notoriously difficult Asia-Pacific market.
Operations in Asia-Pacific tend to be fragmented in terms of doing business online and accepting payments. Most countries have their own payment preferences, which requires a vast amount of partnerships to offer merchants any unified solution. Though bank card penetration is often low, online banking and bank transfers are popular in several key geographical territories, including the Philippines (Banco de Oro, Metrobank, Unionbank), Indonesia (Krung Thai Bank, Bank of Ayudhya, Bank Negara), Vietnam (Vietcombank, Vietinbank, Techcombank), and Thailand (Bangkok Bank, Kasikorn Bank, Siam Commercial Bank), thus also acting as a regional payment method.
Consequently, the most effective solution for payment service providers is to utilise their acquiring licenses wherever possible or to process through local bank acquirer partners. The latter replicates the same model used by local payment gateways in the Asia-Pacific region. As the market is still developing, regional players tend not to be as competitive as their international counterparts in terms of technology, offering only a simple connection between bank and merchant and connecting alternative payment methods. International payment service providers, however, have more experience and can offer an all-inclusive package, featuring an assortment of added value services, such as payment solutions tailored to the specific needs and requirements of merchant clients.
If payment service providers and bank acquirers cannot find the means to collaborate or cooperate, the former pose a direct threat to the latter. The payment service provider’s journey from simplistic gateway to technologically sophisticated acquirer may develop further, culminating in either obtaining an electronic money issuer license or a banking license. The licenses in question expand a payment company’s capabilities, oftentimes putting it into direct contention with banks.
Payment service providers appeal to merchants on convenience, flexibility, and a client-oriented approach, engineering custom technological solutions in accordance with client requirements. Frequently, they are also perceived as a cheaper alternative to connecting to the various payment systems and alternative payment methods individually. As each payment method carries a cost associated with its integration, it becomes cheaper to engage a payment service provider possessing all the necessary partnerships and capable of connecting multiple channels through a single gateway.
Payment service providers and banks each have much to learn from the other, but the ways in which they choose to engage with one another differ. Depending on their individual objectives, technological knowhow, and regions of operation, the two parties choose either to partner, enhancing their offering, or to challenge each other, thereby improving their respective portfolios.
In the collaborative model, payment service providers offer a complementary service to a bank’s acquiring capabilities. Saving their partner time and money, payment companies ensure that each individual merchant receives tailored support, assigning a personal client manager to handle any questions or concerns. In the cooperative partnership model, banks and payment service providers combine forces to offer merchants comprehensive regional coverage. If they are unable to either collaborate or cooperate, the only remaining relationship model is competition, competing on value with acquirer banks. The additional capabilities offered by payment service providers enhance their proposition to current and prospective clients, ensuring that services remain competitive despite charging higher rates than acquirer banks.